Wolf, MZI surmount the debt hurdle

The announcement on Friday erred on the side of restraint, but it seems
Wolf Minerals
is now on the cusp of starting construction on its £129 million ($200 million) Hemerdon tungsten and tin project in south-west England.

The Perth-based Wolf has clinched a deal whereby its major shareholder, private equity firm Resource Capital Funds, will provide a $US75 million ($72 million) bridging loan and a $US7 million payment for a royalty on production from the project.

Added to the £75 million in senior debt secured last month, Wolf can now claim that Hemerdon is fully funded. It does, however, have to meet a number of conditions before it can draw down the full amount of the RCF facility.

One of those is to complete a $20 million equity placement. Wolf is understood to have been poised to announce this on Friday, but negotiations with a strategic investor are still proceeding.

While the bridging facility has a range of fees attached (some might say they are onerous), it is expected Wolf will keep an eye out for opportunities to raise additional equity so that it might avoid drawing down fully on the debt.

It could have attempted to raise a big lick of equity for Hemerdon, but it would have been a major challenge, with the market the way it is. The company, which is capitalised at around $30 million, would have also seriously diluted existing shareholders.

Hemerdon was last mined at the time of World War II. It has lain dormant since, but tungsten’s rise as a strategic metal in recent years prompted Wolf’s efforts to bring it back into production.

Tungsten is needed for light globe filaments, drill bits and industrial coatings. China holds about 60 per cent of reserves, provides 85 per cent of the world’s supplies and is also the metal’s biggest consumer.

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Production at Hemerdon is scheduled to begin in 2014. Once it reaches full capacity, Wolf should be one of the largest tungsten producers in the world.

There’s not too many junior companies in Wolf’s position, where securing debt for their flagship projects is not too difficult a mountain to climb.

MZI Resources
, the mineral sands play spun out of
Michael Kiernan
’s failed empire and formerly known as Matilda Zircon, believes it can count itself among the lucky few.

The Keysbrook project is about a 45-minute drive south of Perth and as such its biggest challenge so far has been getting environmental approvals.

Now that those are in the bag, MZI is talking with lenders in the hope of getting about $70 million, which will be enough to build the mine and provide a $5 million working capital buffer.

While MZI had envisaged a 70:30 debt to equity split, chief executive
Trevor Matthews
now reckons 100 per cent debt could be a better option. And given the deep discounts that most miners have had to offer in order to get cash out of their shareholders of late, he may well be proven right. Banks are said to be lining up to fund Keysbrook, which studies confirm should pay for itself in just 15 months and deliver a 71 per cent internal rate of return.

Those figures are based on zircon and rutile prices falling from current levels, even though most corners of the market believe that by the time Keysbrook comes online at the end of 2013, prices should have recovered.

A merger of equals is not an easy thing to pull off, but West African gold companies
PMI Gold
and
Keegan Resources
look ideally matched.

PMI and Keegan unveiled their $C700 million ($674 million) union this week, with each set of shareholders to own 50 per cent of the new company,
Asanko Gold
.

Asanko will have advanced development assets on the one gold trend in Ghana, a large resource base and plenty of cash.

But perhaps the most important element will be the formidable management team, led by
Colin Steyn
and
Peter Breese
.

Steyn and Breese, who join Asanko from the Keegan side, were key players in the rise of LionOre, the Canadian mining house that sold to Russia’s Norilsk Nickel for $C6 billion in 2007.

Breese may also be familiar from his role as chief executive of uranium explorer Mantra Resources, which was bought by another Russian company for $1 billion last year.

With a large portion of Asanko’s share register to be in Canada following the deal, analysts have questioned whether the company’s Australian listing will maintain much importance.

But there are assurances that it will. PMI’s last two fund-raisings relied heavily on support from Australian investors while the ex-LionOre guys have an affinity with the local market that stretches back a long way.